Supreme Court Holds Lost Foreign Profits Available under §284 in Connection with Foreign Contracts

Author: John Teresinski

In WesternGeco LLC v. Ion Geophysical Corp, 585 U. S. ____ (2018), the Supreme Court weighed in again on patent matters, ruling that lost profits may be awarded for patent infringement under 35 U.S.C.  §284 based on contracts outside of the U.S. While U.S. federal laws and U.S. Patents are generally presumed to apply to U.S. territories, the Court in WesternGeco found that lost profits are recoverable for infringement resulting from a U.S. activity of shipping infringing components of a patent invention overseas. The decision marks a broadening of potential damages available to patent owners for infringement.

The case arose from a patent infringement suit initiated by WesternGeco¹ asserting its patents directed to technology for ocean floor surveying. WesternGeco claimed to be the only surveyor using its patented lateral-steering technology. In 2007, ION Geophysical Corporation began manufacturing components in the U.S. for a similar competing system and then shipping the components abroad to create surveying systems that were indistinguishable from WesternGeco’s. At trial, WesternGeco proved it lost 10 surveying contracts due to ION’s infringement. WesternGeco was awarded damages of $12.5 million in royalties and $93.4 million in lost profits.

On appeal, the Court of Appeals for the Federal Circuit reversed the award of lost-profits damages. This decision was appealed to the Supreme Court and after bouncing back to the Federal Circuit, the Court granted certiorari to determine the scope of the extraterritorial application of 35 U.S.C. §271(f).

In its decision, the Court discussed the two-step framework for deciding questions of extraterritoriality of U.S. statutes. The Court concluded that conduct relevant to the statutory focus is domestic. The Court proceeded to discuss §284 regarding damages remedies and the statutory framework for infringement under §271(f). In brief, the Court concluded that exporting components from the U.S. was a domestic act of infringement under §271(f)(2). The Court also distinguished the current case from damages claims that are based entirely on injury suffered abroad.² The decision was authored by Justice Thomas and joined by a majority of the Court (7-2). Justice Gorsuch authored a dissenting opinion joined by Justice Breyer arguing that the Court’s decision improperly extends the reaches of patent infringement.

Practitioners will surely cite WesternGeco as a basis for broadening damages claims and, in particular, claims for lost profits when there are international sales and contracts. In patent cases, lost profits awards can often surpass the amounts of a reasonable royalty. While it remains to be seen whether this case will dramatically broaden damages awards, it is likely that WesternGeco will be limited to cases with similar factual scenarios to support enhanced damages. The Court noted the nearly indistinguishable nature of the infringing products and the limited developers of the technology. A copy of the Court’s opinion can be found here.

About the author: John Teresinski is a registered patent attorney and a member of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on IP portfolio management, utility and design patent procurement, non-infringement and invalidity analyses, post grant proceedings, patent enforcement, and defense of matters for technology clients, with an emphasis on electrical and electromechanical, user experience, semiconductor, wireless communication, and display technologies in the computer and hardware industries.
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¹ WesternGeco is a subsidiary of Schlumberger NV, the world’s largest oilfield services provider.
² Citing RJR Nabisco, Inc., v. European Community,  579 U.S. ___,___ (2016) (Slip op., at 9).